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UNITED STATES. A calculated shift on China’s non-market economy status?

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WASHINGTON Domestic manufacturers have enjoyed a series of victories in Washington of late when it comes to changes in trade policy toward China.

The U.S. Commerce Department has opened the door to allowing anti-subsidy duties to be imposed on Chinese imports, a change the U.S. pipe and tube producers have put to the test in two new cases. Meanwhile, legislation designed to penalize China for its alleged undervalued currency was introduced in the Senate. While bills to address the hot-button issue are nothing new, this one, from Sen. Max Baucus (D., Mont.) and Sen. Chuck Grassley (R., Iowa), has a real chance of becoming law. And if that wasn't enough, even the Bush administration, often criticized for failing to stand up to China in the international trade arena, has filed several World Trade Organization (WTO) cases against Chinese subsidy programs.

But amid their winning streak, China critics suddenly have found themselves forced to play defense.

The Commerce Department is considering a policy change that would grant "market economy status" to individual Chinese companies in anti-dumping cases, and has requested comments from interested parties.

One source who is opposed to the change said he fears that Commerce has already made up its mind to implement the policy since it was not legally obligated to collect public comments. If the change is made, "every rebar, hot-rolled and plate producer in China will argue that they are market oriented," the source said.

The United States has always labeled China a non-market economy despite strong objections from the Chinese government and industry. Upon its entry to the WTO in 2001, China agreed to wear the non-market economy designation until 2016, but it has frequently requested that the change come sooner. The Chinese argue that despite their communist system of government, much of its industry operates free from government intervention.

But last September, Commerce once again disagreed. It issued an 86-page report which said that while China has made some progress toward becoming a market economy, it is still a long way off. The designation means that because it is too difficult to separate the Chinese government from Chinese industry, sales from China do not reflect the fair value of the merchandise. That changes the calculation methodology and, as a result, anti-dumping duties are often higher on Chinese products. If Commerce begins to make exceptions for some individual Chinese companies, the result likely will be a reduction of those duties.

The domestic steel industry held nothing back in its filings to Commerce.

The change would not only be unwise, it isn't even within Commerce's jurisdiction, attorneys for Nucor Corp., Charlotte, N.C., argued. "(Commerce) has no legal authority to grant market-economy treatment to individual Chinese companies or enterprises. This proposal represents such a substantial change to our trade remedy laws that we believe only Congress could make such a change. Moreover . . . adopting such a practice would seriously weaken our trade laws and would harm U.S. companies and workers."

Nucor said there is no indication in the statute or legislative history that individual companies within a non-market economy country can or should receive any form of differential treatment.

Nucor's filing called Commerce's proposal "disturbing" because it would "incentivize" and reward U.S. companies who choose to move offshore while penalizing those who choose to maintain manufacturing facilities in the United States. "We have no idea why the Commerce Department would wish to adopt such a policy or to aid and abet the transfer of U.S. manufacturing operations overseas," Nucor said in its filing.

The beam and rebar industries echoed Nucor's concerns.

A joint filing by the American Iron and Steel Institute, the Cold Finished Steel Bar Institute, the Committee on Pipe and Tube Imports, the Metals Service Center Institute, the Specialty Steel Industry of North America, the Steel Manufacturers Association and the United Steelworkers union pointed to the steel policy issued by China's National Development and Reform Commission in July 2005 as evidence that the Chinese steel industry is still under the government's thumb.

They said the policy calls for the continued subsidization of key steel projects, bans foreign companies from controlling Chinese steel companies and seeks to micromanage many aspects of future steel industry development, from the number and size of major companies to the location of new plants.

"It demonstrates clearly that China remains in many respects a command economy, in which real power belongs to government officials, not market forces," the joint filing said.

Sources said the idea came from high up within Commerce, meaning it probably has strong administration support. Commerce will probably take 60 to 90 days to review the comments before announcing its intentions.

Members of Congress are drafting a letter denouncing the policy in an effort spearheaded by Rep. Sander Levin (D., Mich.) and Rep. Phil English (R., Pa.).

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